PFA: Fund acted in good faith and cannot be punished

Dr Elmarie de la Rey, the acting Pension Funds Adjudicator

The trustees of a pension had acted in good faith when, despite not having records of whether or not a benefit was already paid to a member, compensated him by purchasing a monthly annuity.

In the belief that it had fulfilled its fiduciary duties by paying his full pension annuity, the fund saw no reason to consider the member’s subsequent request for a one-third cash commutation.

Dr Elmarie de la Rey, the acting Pension Funds Adjudicator, agreed with the decision by the Electrical Contracting Industry Pension Fund (first respondent) not to pay WJ De Beer (complainant) a one-third cash lump sum benefit upon his retirement.

De Beer was employed in the electrical contracting industry and was a deferred member of the first respondent until he reached his normal retirement age on 22 June 2008. He became entitled to receive a retirement benefit upon his retirement.

However, the first respondent did not have De Beer’s membership records relating to his retirement benefit as there had been changes of administrators over the years from Investec Employee Benefits (Pty) Ltd to Sanlam Life Insurance Ltd.

However, the first respondent decided to admit his retirement claim and paid the complainant his benefit by means of purchasing a monthly annuity from Momentum Group Ltd from July 2009 after he approached it for payment of his retirement benefit.

However, De Beer was not satisfied since he did not receive one-third of his benefit as a cash lump sum as indicated on a quotation of his benefit that was sent to him on 20 February 1991.

According to the benefit quotation the complainant could receive a one-third cash lump sum of R78 715.86 and a monthly pension of R2 484.72 if he remained in the fund until the normal retirement age of 65 years.

In response to the complaint, the first respondent submitted that while its trustees had resolved to purchase a monthly annuity for the complainant, they had declined the complainant’s request that his monthly pension should be backdated to 22 June 2008.

The trustees also declined to pay him the one-third cash commutation as they believed they had purchased his monthly pension in good faith and without prejudice.

“The board of trustees is of the opinion that it has fulfilled its fiduciary duties towards the complainant and admits no liability in this regard,” the respondent said.

Dr De la Rey said in her determination that the first respondent’s rules state that a

retirement benefit is payable when a member retires from the service of the

employer on his normal retirement date.

According to the fund’s rules, a member’s retirement benefit consists of an annuity policy

purchased with the member share. By applying to the fund prior to his/her retirement, the

member may convert a part into a lump sum payment, but not more than one-third of the

benefit.

Dr De la Rey ruled: “A normal retirement benefit, as stated in the fund’s rules, became payable to the complainant.

“Despite not having evidence whether or not a benefit was already paid to the complainant, the first respondent decided to pay a pension to the complainant.

“The trustees considered the complainant’s request for a cash commutation, but decided that he should be paid his full pension annuity. The complainant did not make any election before retirement.

“The trustees acted in terms of their rules and decided that the complainant is entitled to a full pension rather than a cash commutation of one-third of his retirement benefit. In the result, this tribunal cannot reverse the trustees’ decision.

“The complaint cannot succeed and is dismissed.”